We are on the cusp of seeing year-over-year median price declines, so let’s talk about it. I wanted to share what looks to be on the horizon in the Sacramento area, and whether you’re local or not, I hope this is helpful.
UPCOMING (PUBLIC) SPEAKING GIGS:
10/11/22 Folsom MLS Meeting (9am)
10/13/22 Market update in Midtown (12-2pm Sign up here)
10/18/22 Orangevale MLS Meeting Q&A (9am)
10/20/22 How to Think Like an Appraiser (9am-12pm) (Sign up here)
THE SCOOP ON PRICES & DOOM
First off, I’m not a doom and gloom guy perpetuating fear for clicks. This is about objectivity and the stats – not being alarming. Okay, that aside, let’s dig into the details. The dotted line in the visuals below is a projection for the October median price based on the price of pending contracts in September. In short, the top line is the median price in 2022, and since May we’ve seen a sharp change which looks like it’s very close to touching or going below last year. It’s possible stats won’t dip below next month, but it looks strongly plausible for Sacramento County (the region will be really close). Keep in mind, this doesn’t mean every single month ahead will be below last year since price metrics can bounce up and down. Whatever the case, we’re close, and it won’t be shocking if finalized October stats are near my projected line. We’ll see.
BUT BRO, THE MEDIAN HAS ISSUES: Okay, if you don’t care about technicalities about the median price, skip this section. Some might question the median price, and that’s healthy. The thought is we’re seeing smaller homes sell this year, which waters down the median price. But since May the average home size in the region is down 1.74% from last year and the median size is down 0.74%. In short, we’re not talking about a massive difference in size that accounts for the dramatic price difference today (home size does matter). However, all price ranges have seen a dip in volume, and if we start to see more of a dip at the top or bottom, that could certainly affect the median price. Lately volume has been hit the hardest at lower prices. Ultimately, I advise watching traditional metrics such as the median price, average sales price, and average price per sq ft, but also watch big data firms that put out price indexes that don’t have anything to do with the median. Absorb it all. On that note, I talked to Rick Palacios Jr of John Burns Real Estate Consulting and he tells me their Burns Home Value Index is down 7% from the spring through September in Sacramento. In contrast, the median price is down 8.9% from the spring during this same time period. So, there’s a difference, but not too far apart.
CHOOSING COMPS: Being close to last year doesn’t mean the best comps are automatically going to be from one year ago. Maybe. Maybe not. This is where it’s critical to study recent neighborhood sales as well as listings and pendings. The story won’t be exactly the same in every neighborhood, so be careful about imposing a “prices are lower than last year” narrative on every area.
MARKET TRUTHS:
1) CHANGE: Markets go up and down, and home prices are not sacred. In my office I have a sign that says, “The market is always moving.” It’s just true. And while Chuck Norris might eat 7% mortgage rates for breakfast, it’s not as easy for the rest of us mere mortals.
2) WE NEED AFFORDABILITY: As I said a few weeks ago, higher rates are changing the game, and we ought to believe the Fed when they say they want to reset the housing market. If rates went down dramatically, it would bring lots of buyers back, but prices would still be high, so low rates alone don’t solve the affordability issue. This is where price declines today seem necessary for the climate of rates at seven percent.
3) BUT INVENTORY IS LOW: Inventory is definitely still historically low, but a lack of affordability is the bigger force here. In other words, low housing supply isn’t the trump card to keeping prices up. I find sometimes people use a low inventory narrative to say prices cannot go down, but the stats are currently showing otherwise.
4) WE NEED TIME TO SEE THE TREND: There are many ideas about the future and the magnitude of possible declines, but only time will tell for sure. Remember, projections for “national” housing trends don’t mean much for local markets. So, when people say things like, “Dude, the national market will take a 10% hit,” that might not apply at all to Sacramento or wherever you are located. The truth is some areas will feel it more than others.
5) FIGURING IT OUT: The market will adapt and figure this out. If rates keep rising, we’re poised to see more buyers step aside. Bottom line. But this doesn’t mean all buyers and sellers will stop. For now, we are missing about 3,500 sales in the Sacramento region since May, but over 10,000 sales have happened within this time period. Sometimes people talk like literally everyone has stopped buying, but that’s fake news. I’m not trying to sugarcoat the housing trend. I’m just saying we need to obsess over actual stats and form our perception based on the numbers. And remember, it might not be a good time for you to buy or sell, but that doesn’t mean it’s that way for everyone. Look, buy or don’t buy, but be confident in your decision. No pressure from me.
SOME ADVICE:
1) BUYERS: Be patient for the right house and do not overpay. Try to get a better deal, get credits, ask for repairs, and see if you can get a price reduction. Be realistic though. Prices have been going down, but this is not January 2008 either. In recent months we’ve seen 26% fewer sales, which means you have more power. But it also means 74% of the market has still been happening. In short, don’t make any rash decisions, and get as much as the market will give you right now.
2) SELLERS: If you want to compete for the attention of buyers today, you have to put your best foot forward and accept that buyers aren’t desperate for you. Seriously, buyers are picky about getting into contract, and they’re going to walk if you play games. Buyers are really sensitive about price, location, and condition. You can only control the price and condition, so do all you can to compete. And use a mortgage calculator to plug in numbers to see what the monthly payment looks like on a house like yours. Once the shock wears off, let that be fuel for reasonable pricing. What is similar and getting into contract? Price according to those data points rather than your neighbor John who is smoking pricing crack (technical term for John being unrealistic).
3) REAL ESTATE FRIENDS: It looks like price metrics are going to dip below last year. If not next month, it’s likely to be soon unless something interrupts the trend. The truth is this can be really challening for some real estate professionals who are used to saying only ultra-positive things about the market. My advice? Build your business and narrative on the stats and lifestyle buyers instead of glowing news of prices being up. It’s not about the direction of prices, but instead about finding prospective clients who have incentive to buy and sell regardless of what prices are doing. This is true in an up market and it’s true in a down market. Bottom line.
Thanks for being here.
—–——– DEEP LOCAL MARKET UPDATE ———––
Scroll quickly or digest slowly.
SHARING POLICY: I welcome you to share some of these images on your social channels or in a newsletter. In case it helps, here are 6 ways to share my content (not copy verbatim). Thanks.
YEAR OVER YEAR STATS:
Here’s a look at stats compared to last year. And remember, closed sales in September really tell us what the market used to be like in August when the bulk of these properties got into contract.
MONTH TO MONTH:
Looking at sequential months is key too so we don’t just get stuck or hyper-focused on last year (the past).
OTHER VISUALS:
Here are lots of visuals. Probably more than you wanted. I have mostly Sacramento County and regional stuff this time around since most of my presentations have been in Sacramento lately.
MARKET STATS: I’ll have lots of market stats out this week on my social channels, so watch Twitter, Instagram, LinkedIn, and Facebook.
Thanks for being here.
SHARING POLICY: I welcome you to share some of these images on your social channels or in a newsletter. In case it helps, here are 6 ways to share my content (not copy verbatim). Thanks.
Questions: What stands out to you above? What are you seeing happen with prices right now? If you’re not local, are prices in your market close to year-over-year declines? I’d love to hear your take.
If you liked this post, subscribe by email (or RSS). Thanks for being here.